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AUG 04'95 11:35AM
MEMCAN CETES TOTAL RETURN SWAP TERM SIHEET
CAPITAL SERVICES
INDICATIVE PRICING AND TERMS -AUGUST 3,1995
The Cetes Total Return Swap allows investors to earn high peso yields with foreign exchange exposure while financing at dollar yields. The swap is a dollar denominated contract with returns indexed to the change in the peso/dollar exchange rate.
Terminal Value Cetes-Initial, Value Cetes (
broker Investor
( USD Libor * Notional Amount
Notional Amount: USD 10,000,000
Commencement Date: August 8, 199
Maturity Date: August 8, 1996
US Dollar Total Return Payor
USD TR Payor.- Investor
USD TR Rate: 12 month LIBOR +IOOBPs 6.9375%
Payment Frequency: Annual
Payment Date: August 8, 1996
Mexican Cetes Total Return
Cetes TR Payor: broker
Cetes TR Index: (Terminal Value) - (Initial Value)
Terminal Value (Face Amount of Cctes) * (Cetes Price Terminal) -------------------
-----------------
(Peso Spot Terminal)
Face Amount Cetes (Notional Amount = USD 10 NM) * (Pew Spot Initial - 6. 100) -------------- - - ---
-----------------------------------------------------------
(Cetes Price Initial - 73.75540/o implies yield of 35
= Nuevos Pesos 82,705,833
Initial Value Notional Amount
Peso spot Terminal The exchange rate of Mexican Pesos for US Dollars, expressed in terms of pesos per dollar, at which broker x can sell pesos for dollars on the date that is two New York, London, and Mexico City business days prior to the maturity date.
Peso Spot Initial The exchange rate of Mexican Pesos for US Dollars, expressed in terms of pesos per dollar, at which broker x can buy pesos with dollars on the date that is two New York, London, and Mexico City business days prior to the commencement date.
In the event that, as of the Pricing Date, the Government of the United States of Mexico ("Mexico") has restricted or prohibited the sale of Pesos for dollars and/or failed to honor its obligation on Cetes having as its maturity date, the Termination Date, then in place of the Cetes TR Index, the Cetes TR Payor shall deliver on the Temiination Date pesos equal to the Face Amount Cetes, or Cetes maturing on the Termination Date having the same face value to an account in Mexico City, Mexico; and the US Dollar TR Payor will deliver the Notional Amount in addition to the USD TR to the Cetes TR payor's account in New York
Payment Dates: Same as Fixed
Documentation-. Standard ISDA documentation
CETES-2
explanation to the swap terms:
notional amount =the number of dollars you are investing: $10,000,000. That is also known as the initial value.
Face amount: The number of US Dollar $10,000,000 (x) the beginning peso rate 6.10
divided by: the cete price. Since the cete trades at a discount and matures at par, the number used here is the percentage of par for a one year obligation when the rate is 35%. Ie: the cete is trading at 73.755% of par
($10,000,000 * 6.10) /.73755 = 82,705,833 pesos invested.
terminal value: In this case we are doing a different calculation than the usual cete trade. We are keeping the same number of peso's as we had at the beginning (82,705,833) and multiplying that by the cetes price terminal (which we know is par if held to maturity) and dividing it by the final peso rate (let us assume 7.50 in one year).
82,705,833 / 7.50 = $11,027,444
Terminal value - initial value = your profit or loss
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